Nicaragua’s presidential election

Ortega goes capitalist

Looking for alternatives to Venezuela

FOR more than a year, giant billboards around Managua have been urging voters to re-elect Daniel Ortega, who is poised to win a third, unconstitutional presidential term in November. The posters portray the former guerrilla, who helped to overthrow the Somoza dictatorship in 1979 and still leads the Sandinista National Liberation Front (FSLN), as a socialist. Yet in a smart hotel in the capital, Mr Ortega's ministers were busy this month wooing the fat cats of the capitalist world. Incentives to invest in the socialist republic included lengthy exemptions from taxes.

The FSLN is “a party of the left, but a very realist party,” according to Bayardo Arce, a revolutionary comandante who is now the president's economic adviser. Although Mr Ortega has steamrolled institutions such as the electoral commission and the courts, he has been careful to avoid messing up the economy. On a visit to Managua in July, the IMF's deputy head praised Nicaragua's “courageous” efforts to maintain macroeconomic stability. The World Bank reckons it is the easiest country in Central America, Panama excepted, in which to start a new business. This year Nicaragua expects to have more foreign direct investment, as a share of its GDP, than any other country in the isthmus.

That is in part misleading. By far the biggest foreign investor is Hugo Chávez's Venezuela. Nicaragua imports all its oil, worth $1 billion, from Venezuela, which gives around $500m back in the form of soft long-term loans to Albanisa, a private company jointly managed by the two governments. Half of this is spent on social programmes, from zinc roofs and livestock to subsidised bus travel. The remainder is invested, often opaquely, in businesses, including a city-centre hotel (where the Venezuelan flag hangs in the foyer) and a television channel, whose takeover last year forced a prominent critic of Mr Ortega's off the air. Venezuela has also started to buy Nicaraguan exports, mainly food, at a handsome markup. Whereas in 2007 it accounted for 0.5% of Nicaragua's exports, last year it took 13%, worth $249m.

This alliance has helped to shield Nicaragua from the slump in the United States. Last year its economy grew faster than that of any other country in Central America apart from Panama. But the flurry of interest in courting other foreign capital suggests a desire to diversify. Venezuela's president and its economy are both poorly; should the health of either deteriorate further, Nicaragua will need other friends. Mr Ortega, who was president of Nicaragua during the death throes of the Soviet Union, knows all too well what it is like to lose a sugar daddy.

Foreign investors see plenty of opportunities. Levi's jeans and parts for BMW cars are among the things already made there, tempted by Nicaragua's low costs. Labour is cheap and plentiful; offices can be rented from $8 a square metre per month. The drug war that has engulfed the northern part of Central America has not yet arrived: the murder rate is less than a fifth that of Honduras, which has long been a favoured manufacturing centre. Under the Central American Free-Trade Agreement, Nicaragua enjoys tariff-free access to the United States.

Foreign investors' main worry is infrastructure. The ports are antiquated. Water and electricity are not available in a rural area where an American shoe company would like to build a leather plant. Corruption is another complaint. The courts are among the least independent in the world, according to the World Economic Forum, which places Nicaragua 132nd out of 139 countries on this count. Multinationals do not feel threatened by this; their operations tend to rely on labour rather than big capital investment. Smaller outfits, such as hoteliers, and capital-intensive industries, such as electricity generators, are more nervous. Maintaining their interest will be crucial if Nicaragua is to stay afloat when Venezuela's generosity runs out.